Doing the Limbo

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It's a great time to think about taking a company public. Just don't actually do it.

Or so a recent Ernst & Young report suggests .In second-quarter 2008 — when there were no venture-backed offerings — 30 optimistic companies registered with the Securities and Exchange Commission. By E&Y's count (excluding companies whose registrations have been languishing for more than a year), that raised to 80 the number of hopefuls in the IPO pipeline.

But will any of them actually launch? "Only when there's a period of stability in the broader market," guesses Paul Bard, vice president of research at Renaissance Capital. "The prospects for the classic growth-IPO are pretty poor right now." Only 14 of the potential launches actually priced during the period, according to Renaissance, and the sluggishness showed no sign of stopping in the third quarter.

On average, companies have been stuck in the chute for about six months, double last year's wait time. Why are they there? "Some companies want to display their information publicly so that private investors and strategic corporate buyers will see it," says Jackie Kelley, Americas IPO Leader at E&Y.

If no buyer appears — an increasingly likely scenario, given the slowdown in the M&A market and lack of cheap capital for private-equity firms — then the best hope for IPO candidates that need capital now is to raise more from their existing backers. For those that are profitable or self-sustaining, Bard recommends "hunkering down" and "focusing on not expanding as rapidly."

But standing in place is not a strategy that appeals to growth-oriented CFOs. "I wouldn't do that," says Christopher Speltz, vice president and CFO of CreditCards.com. Although his company withdrew its offering last June, Speltz says that the strong number of filings might reflect "an expectation that we've been through the down period." Maybe so, but there are no signs of a rebound yet.